Explore, Exploit, and Transform Your Way to a Digital Future

Leslie Barry ThoughtWorks Explore Exploit and Transform Your Way to a Digital FutureGood morning. Thousands of startups around the world are disrupting your business, as we speak, stealing your revenue and your customers. 75% of Fortune 500 companies won't exist in the next 10 years. Both these statements are mostly true, but they're certainly not new. The same happened when we went from hunting to agriculture to the industrial age and now to the digital age. The difference is it's happening very, very fast. And the impact is global and instant. Customers are wanting what they want, when and how they want it, and they want it right now. So everyone spent the last 12 to 18 months scaring the hell out of us, and I'm sure you don't want to spend another day listening to us. So I really like this quote from Peter from MIT. We talked about changing your customer experience through digitalization requiring radical organizational surgery. Because it means it's painful, it's hard, and it's going to hurt. So today, what we're going to do is talk to you about how do you prepare for the digitalization of everything and the ensuing impact on your business. How do you go from a business that's currently really successful and running well, and take advantage of the digital opportunities to optimize and grow and scale your business, while leveraging new business models and creating new growth from new customers? Can you avoid disruption, or is inevitable? And what about your impact on finding models, on incentive schemes, on customers, and on loyalty? As leaders, we are expected to run two vastly different businesses while transforming the one and growing the other. And we're hearing a lot about the disruptor and the disrupted. So let's talk about those two. So as the disruptor, innovation is relatively easy. It's still bloody hard, but it's relatively easy. You go from ideation to minimum viable product, without all these organizational constraints, you get feedback quickly from your customer, you change, you build another product, you get product market fit, and you launch your validated product. But scaling is really, really hard. How do you get access to brand customers and resources? As an existing business, you have exactly the opposite problem. Scale is easy. Your business is built to roll out products and scale things up. You've got the brand. You've got the resources. You've got the customers. But innovation is really hard. We all talk about it, but it's tricky. It's not that there's any shortage of ideas or the ability to execute. But what do you do in the middle? How do you know which ideas to work on? How do you know what methods to apply to those ideas? And what about the impact on your culture? We all say, failure is learning. But what does it really mean inside your business, when your business isn't structured that way? But maybe what it takes is to look at this vast portfolio of assets that you have as a business as an advantage over these competitors, over these disruptors. They move faster. They innovate quicker. They're not constrained by the organization. But you have the power of brand, customers, scale, and resources. The skill is to apply these in new ways and move from a project-based approach to one of continuous experimentation and learning from your customers. And one size doesn't fit all in your business. If you're a financial institution, of course it's part of your business that you want to be locked down and moving deliberately and slowly, but there will be customer facing pieces that you definitely want in a continuous state of flow and experimentation and learning. The digital economy is proving that it's hard to predict three months, never mind 12 months, ahead. So why are we delivering redundant products and services against these more nimble competition? But fortunately this isn't new. And there's a hell of a lot of lessons to be learned. So I've been fortunate to work with over 2,000 startups across 32 countries. I've bought four startups. I've sold two. I've destroyed two completely. So there's a lot of learning in there. And I've got some enterprise experience. And what I'm seeing that applies here is that it's really about being open and receptive to the voice of the customer. It's about adopting innovation approaches, from tech accelerators and startups. All this stuff is being done. And it's about learning from the resources out there, like the lean enterprise, the lean startup design thinking, and applying approaches in your enterprise around continuous delivery and integration. All the building blocks are out there. It's just about how you understand which parts of your business these apply to and how you can digitalize and scale these. So where do you start? Well, depends where you are? But a brave leader is absolutely critical. And we believe that understanding your business in the context of which products and services you can explore, exploit and sustain is a useful model. So until recently, most mission statements go something like, blah, blah, blah, shareholder value. And what you've done now is you've tacked on end customer centricity. And the reason we've done this is that a customer has a much stronger voice in your organization through the proliferation of different channels and technology. They're amplifying their voice. So the customer is the new CEO in your business. So this makes it important to view your purpose from the perspective of the customer's point of view. Of course, you need to generate shareholder value, create profits, and sell the customer something. But they're not just a narrowly defined demographic or simply a revenue stream. So the tools that you have to respond to this, in two broad buckets of capability, are your organization and technology. Until now, organization has absolutely been your strength. But bring scale, process, industrialization, in a common, controlled structure, which has brought you to where you are now. And information technology has been the constraint. IT moves slowly, and it's really, really hard to change. This is all flipped now completely on its head. So when the organization is becoming the constraint, how do you work in small chunks, create visible work, implement finding models to create innovation? Align work to purpose, and people to work, and create measures where failure is the same as success. And technology is here in abundance. So we have the ubiquity of cloud that allows us to rapidly scale our products cheaply and quickly. You've got the promise of the Internet of Things, where we're able to measure and track almost anything that you need to. And technologies coming down the line, like quad copters, 3D printers, virtual augmented reality, wearables, all these things. All underpinned by much, much more robust security practices and supported at the enterprise level through practices like micro services and continuous delivery. But your organization is different and unique, and you need to look at this model through the context of your business and understand it in that context. So as we know, all products sort of go through a product life cycle, where they're initiated by customer demand, and they transform into a new product, or they get killed and we retire them. So when a product starts an idea, it goes through this exploration cycle where we're trying to validate and learn. And when it gets to a point that it's market ready, we then roll it out into the exploit phase, where we're learning from the customers and getting feedback. When we get the right level of feedback, we roll it into a sustain phase, where it becomes part of your mainstream business. What's interesting to note here is that we're constantly, in all of these phases, testing it against, what does your customer want right now? Not what did they wanted or we projected. How are they behaving at the moment? These, our organizational purpose, aligned to this. And what our organizational technology capabilities look like, and constraints, look like to support this? The size of each of these phases is also important, so that size indicates the impact on your business. So it makes sense. It's much easier and cheaper to experiment in the explore phase than in the sustain phase. As this reduces cost and complexity, and potential impact on your brand. And each of these phases has a different set of rules. So in the explore phase, finding models and measures of success while you're experimenting look very, very different to what you would do inside your mainstream business. So let's illustrate that via a small-minded, underachieving South African in America. So you may have heard of Elon Musk. He's the co-founder of Paypal, of SpaceX, which, has got a contract with the space station, of SolarCity, which is the second largest solar provider in the United States, and of Tesla, the electrical car company. And we'll use Telsa as an example of how to run this model, with its complexity. So, let's sit back a bit, so Elon's purpose is to create a sustainable future for humanity. So how do you do that? Well, you start with the customer. What the customer doesn't want is a small, underpowered hybrid electric car. That's idiot. You certainly don't want that. What they do want is a high-powered sports car with insane acceleration, which just happens to be electric. So you both win. And this was really smart, because this created the marketing and the PR. It's popularizing the electric car. It's creating a revenue stream for him-- and for Tesla-- to be able to create smaller and smaller vehicles and be able to make these mainstream. So Tesla started out in the explore phase and designed and built the roadster. And when they got to a point that the market could absorb it, they pushed it out into the exploit phase. And they sold this to a relativity niche audience. While they we're doing this, they started working on the Tesla Model S, and they realized very quickly that the problem that you have with an electric vehicle is the battery, obviously. So not accepting that battery technology is what it should be what it was at the time, they partnered with Panasonic to improve the battery technology. When this got to a point that it was market ready, they moved the Model S into the exploit phase, and they killed the roadster. They realized two things here when this hit the market. One, it was really popular, so they needed to be able to make batteries faster in a sustainable way. And two, that their customers were suffering from range anxiety, which is the fear of not getting to a destination in your electric vehicle. So they started working again in the explore phase, and they designed the gigafactory, which is a solar powered battery manufacturing facility, just still under construction. And the supercharger station. And the supercharger station is effectively a solar-powered filling station. Once this was ready, they pushed the Model S into the sustain phase, into the mainstream business, to start generating revenues. And the supercharger station into the exploit phase. And here they did something really smart. They open sourced the supercharger patents and IP. So think about a company that has spent all these years and this time perfecting this technology, then they just gave it away. And the reason they did that was to create scale and to make this mainstream. So at the moment, you can get in your Tesla in San Francisco, you can drive across the whole United States to New City, for free, in your electric vehicle. Clever. There's nothing wrong with that. What they also realized was that their battery technology could translate into other products. So a few weeks ago, you would've noticed that Elon announced the Tesla Powerwall. And the Powerwall is the same battery technology that you can use in your house to store solar power, which can scale up to neighborhood size or to power station size. So the lesson here is that all the lessons they're learning from explore, exploit and sustain are interchangeable across the different phases, and they're able to create products in adjacent markets. At the same time, they're cycling through what the customers want, what the purpose is, and challenging the organizational and technology constraints to see how they can improve. That's fine. Why do we care? So what if you're not a genius, multibillionaire Iron Man living in Silicon Valley? Well, we care because the disruption is happening here. So I'll just touch on a few of them. So what we're seeing in professional services, and this is all Australia focused, is the likes of cloud providers, like Xero, being a good example in New Zealand that want to disrupt professional services, amongst lots of others. In banking, we've got EvoPay, we've got Bitcoin, where the New York Stock Exchange has just taken a stake in one of the companies to try and optimize their trading platforms. We've got players like Stripe, peer-to-peer lending. There's a lot of stuff happening. In this sector, we've got global players coming into the local markets starting to cause some trouble. We've got eBay, and Amazon is starting to ramp up their local operations, and a lot of other providers online. In insurance, this seems like free-for-all, so we've got grocery providers, banks, Google, Australia Post, everyone who's got an online presence is basically getting into this business. In real estate, we've got real estate accommodate AU, who's doing really, really well in the local market. Airbnb disrupting it. And a lot of players getting into the market of getting rid of additional space like garages and meeting rooms and those kinds of things, which is damaging the hotels. Telecommunication is getting really interesting. So we've companies like WhatsApp, part of Facebook, Snapchat, which just raised another $559 million venture, Instagram, all these products. And transport, we've got ride sharing goCatch, and the giant Uber, who's raising billions of dollars and really disrupting this market. But it's not like Australia is sitting doing nothing. So the activity that we've seen is that there's a lot of companies funding vertical accelerator programs like financial services, health care, and telcos. There are hackathons of all flavors happening, inside and outside organizations, to try and bring some of this innovative thinking and culture into business. We've got innovation labs popping up with different flavors. And a lot of partnerships happening, specifically in Sydney, with university accelerator programs. In exploit phase, even the government is in on the action. So the government is making its data sets available to be able to create additional services for the community. And there's a lot of open API activity. And we'll hear about some of that today with the likes of airlines and telcos doing this. And in the sustain phase, we've got companies creating-- or were taking up space inside co-working spaces-- to be able to infuse some of this innovation and culture inside their business. And once again, more hackathons. So today, you'll hear from companies that are leading the way by creating the freedom to experiment and the capabilities to create this digital future. From a large network provider who's thinking like a start up, a digital pizza company-- a financial services institution, sorry, that's creating agility and speed, and a new take on creating loyalty with brands. And in closing, how do you respond in a world where a 14-year-old kid from Cortez, Colorado, with a population of 9,000, spends a few years creating a prosthetic arm with a 3D printer, and then on the cusp of cashing in on this, open sources this at CES in Las Vegas, and gives it away for free? How do you respond in this world? Well, Easton will be talking to us exactly about this this afternoon, so I encourage you to stay around. And thank you for your time. I hope you have a great day.

'The organisation, as opposed to the technology, is now one of the biggest barriers to innovation'.

Disruption isn't a new concept. Throughout history it has been ever present, driving us from hunting to agriculture, from industry to today's digital era. More than ever customers are at the heart of what we do. Leslie describes how the customer has become the new CEO of your business, and as such, the purpose of all organisations has moved beyond 'shareholder value', to include 'customer centricity'.

This talk explores the Explore, Exploit, Sustain model for Building A Digitally-led Business. He discusses the cost of experimentation in each stage, how to incorporate feedback, and build the capabilities necessary to shift the idea into a core offering of the business. Lessons can be learnt from every stage to become a resilient and adaptable organisation.

Leslie works with funded startups and enterprise customers who are looking at embracing digital innovation to protect and grow their business. His enterprise and start-up experience helps create the ability to innovate and drive change through innovation labs, open innovation and organisational design approaches. He works closely with technology teams to create the execution capability for these clients.